If you’ve practiced medicine in the past 16 years, chances are you’ve heard of the Medicare Sustainable Growth Rate (SGR). In essence, it was meant to cap Medicare spending but ultimately had quite the opposite effect.
Now, Congress faces the yearly burden of allocating billions to the botched program to prevent radical cuts to doctor’s Medicare payments. Just last month, Congress had to apply a last minute “doc fix” during the fiscal cliff debacle to prevent a staggering 26.5% reduction.
We think it’s due time to take a look at the history of the Medicare SGR, what went wrong and how the experts suggest we fix it.
What is the Medicare SGR?
Legislated as part of the Balanced Budget Act of 1997, the SGR determines how much Medicare pays for physician services.
Under the SGR, total Medicare spending on medical services is supposed to follow a target path that is contingent on the rates of growth in physicians’ costs, Medicare enrollment, and economic GDP.
If spending during the year exceeds the pre-determined SGR goal, then the amounts paid to physicians for services are supposed to be reduced the following year to shift total spending back on track.
Flawed System
Originally, Congress expected the SGR to only slightly lower payment rates because, at the time, the volume and complexity of physician services were growing more slowly than expected.
Due to an increase in said volume and complexity in the early 2000’s, though, the SGR began to produce a 4.8 percent cut in payment rates — way more than anticipated. Since then, the payment cuts have jumped to almost 27%, forcing Congress to intervene.
In an AMA survey, 60% of responding physicians said they would be forced to limit the number of new Medicare patients if these cuts stay unchecked.
“Ultimately, it is our country’s families and seniors who will pay the price for congressional inaction,” said Glen Stream, MD, chair of the American Academy of Family Physician’s board of directors. “We need to end the uncertainty that undermines patients’ confidence in Medicare and disrupts physicians’ ability to provide ongoing care.”
More than half of physicians interviewed in the AMA survey also admitted that if Medicare payments diminish they would put off purchasing new medical equipment or installing new information technology in their practices — stalling advances in Meaningful Use standards.
Because the SGR’s designers significantly misjudged the increase in volume and complexity of services, decreases in physician payments have also become more severe with each passing year. If the SGR isn’t corrected, Medicare payment rates could drop by 40% in 2016.
Drastic reductions in payments combined with increasing practice costs could make medicine a less attractive career choice for students and force many physicians 55 or older to retire. This would lead to a devastating shortage of doctors in the U.S. over the next decade.
The Solution
The SGR approach is faulty because it attempts to restrain Medicare spending for physicians’ services by limiting payment rates without controlling the growth in the volume and complexity of services.
The Medicare Payment Advisory Commission recommends repealing the SGR formula and including new incentives for individual physicians to control volume growth in the new legislation.
Several organized medicine groups spent the latter part of 2012 lobbying legislators to permanently repeal the formula. Leaders from the American Medical Association, the American Academy of Family Physicians, the American College of Physicians, the American College of Surgeons and the American Osteopathic Assn. all met with politicians to stress the importance of replacing what doctors consider a severely broken payment system.
“Our message to Congress is clear. We are ready to work with you to move toward a stable Medicare program that promotes quality innovations for patients, provides a rewarding work environment for physicians, and reduces costs for taxpayers,” said AMA President Ardis Dee Hoven, MD.
PYP hopes Congress gets the message and begins moving toward a solution. If not, doctors will continue to face unprecedented cuts for their services and be forced to treat less Medicare patients.
If you’re interested in getting involved, the AMA suggests contacting your local representative and senator to petition for a repeal of the Medicare Sustainable Growth Rate.
What would your practice be forced to do if Medicare payments were cut by more than 25%?
Do you know what you need when setting up a new medical practice?